Most of us can't do it. Only accredited investors with a net worth of at least $1 million or an annual income of $200,000 for singles or $300,000 for married couples can invest in hedge funds, according to the Securities and Exchange Commission.

The benefits include:

Hedge funds focus on absolute returns. These funds use strategies designed to perform well in up or down markets.

Hedge funds are not dependent on interest rate stability or a favorable stock market to perform well.

Hedge funds seek to profit from market volatility because they can take long or short positions in the market.

Hedge funds limited the amount of money under management. This gives the more investment flexibility.

Hedge fund mangers are compensated based on performance. Incentive fees can be as high as 50 percent if the fund doubles its money. In bad years, however, hedge fund managers don't get paid.

The drawback includes:

Hedge funds are largely unregulated. You must be sure you are dealing with experience and trustworthy hedge fund managers.